(Mark One)
   X    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT  OF 1934
          For the fiscal year ended June 30, 2002

OR

          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
          For the transition period from          to         

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant is $677,517,017 as of August 31, 2002.

Portions of the Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on or about November 18, 2002 are incorporated by reference into Part III of this Form 10-K.

Item 1. Business.

Watson Wyatt & Company Holdings, including its subsidiaries, (collectively referred to as "we", "Watson Wyatt" or the "Company") is a global human capital consulting firm. We help our clients enhance business performance by improving their ability to attract, retain and motivate qualified employees. As leading economies worldwide become more services oriented, human capital has become increasingly important to companies and organizations. The heightened competition for skilled employees, unprecedented changes in workforce demographics and rising employee-related costs have increased the importance of effective human capital management. We help our clients address these issues by combining our expertise in human capital management with technologies in order to improve the design and implementation of various human resources, or HR, programs, including compensation, retirement and healthcare plans.

We design, develop and implement HR strategies and programs through the following three closely interrelated practice areas:

Our clients include many of the world's largest corporations as well as emerging growth companies, public institutions and non-profit organizations. Many of our client relationships have existed over several decades.

We believe that our extensive experience, global presence, dedication to long-term client relationships and recognized reputation for quality provide us with significant competitive advantages. We focus on delivering value-added consulting services that help our clients anticipate, identify and capitalize on emerging opportunities in human capital management. We implement this strategy through over 4,250 associates in 61 offices located in 18 countries.

1

Including predecessors, we have been in business since 1946. Watson Wyatt & Company Holdings was incorporated in Delaware on January 7, 2000. Our principal operating subsidiary, Watson Wyatt & Company, was incorporated in Delaware on February 17, 1958. We conducted our business as The Wyatt Company until changing our corporate name to Watson Wyatt & Company in connection with the establishment of the Watson Wyatt Worldwide alliance.

Watson Wyatt Worldwide Alliance

Recognizing our clients' need for a global organization to service their needs, we established operations throughout Europe in the late 1970's by acquiring local firms and opening new offices. Responding to the rapidly increasing globalization of the world economy, we made a strategic decision in 1995 to strengthen our European capabilities significantly and extend our global reach by entering into an alliance with R. Watson & Sons (formerly Watson Wyatt Partners, now Watson Wyatt LLP), a leading United Kingdom-based actuarial, benefits and human resources consulting partnership that was founded in 1878. Since 1995, we have marketed our services globally under the Watson Wyatt Worldwide brand, sharing resources, technologies, processes and business referrals.

The Watson Wyatt Worldwide global alliance maintains 87 offices in 30 countries and employs over 6,300 associates. Watson Wyatt & Company Holdings operates 61 offices in 18 countries in North America, Latin America and Asia-Pacific. Watson Wyatt LLP operates 10 offices in the United Kingdom and Ireland. The alliance operates 16 offices in 10 continental European countries principally through a jointly-owned holding company, Watson Wyatt Holdings (Europe) Limited, which is 25% owned by us and 75% owned by Watson Wyatt LLP.

Human Resources Consulting Industry

Overview

The growing demand for employee benefits and human capital consulting services is directly related to the size, complexity and rapid change associated with human resources programs. In the U.S. alone, employers spend over $6 trillion annually on the direct costs of human capital such as compensation and benefits. In 2001, U.S. employers contributed over $180 billion to pension and profit sharing plans, and $300 billion to group health insurance programs, while the assets of U.S. employer sponsored retirement plans approximated $8 trillion.

Employers, regardless of geography or industry, are facing unprecedented challenges involving the management of their people. Changing technology, difficult economic times, critical skill shortages and an aging population in many developed countries have increased competition for talented employees. At the same time, employees' expectations relating to compensation, benefits and other HR services are growing. Employers must address these challenges effectively in order to remain competitive.

Watson Wyatt is one of the leading HR-focused consulting firms that compete in serving the large employer market worldwide. Other major consulting firms include: William M. Mercer, Towers Perrin and Hewitt Associates. In addition to these firms, the industry includes smaller benefits and compensation firms and the HR consulting divisions of diversified professional service firms, such as the big four accounting firms, Accenture, EDS, Booz, Allen & Hamilton, Mellon Financial Corporation and Aon. The global HR consulting industry is highly fragmented. There are approximately 950 firms providing HR-related consulting services, with the four major HR-focused consulting firms accounting for approximately 40% of total industry revenue.

Consulting Services

Our North American operations include three principal practice groups: Benefits, eHR and Human Capital. Outside North America, our operations are organized and managed on a geographic basis. The percentage of revenues generated in the various groups is as follows:

Prior year percentages have been recalculated to conform to current classification. For more information about industry segments, see Note 13 of Notes to the Consolidated Financial Statements, included in Item 15 of this report.

Benefits Group

Our Benefits Group is our largest and most established practice, with a franchise dating to 1946. This group consists of approximately 1,630 associates and works with clients to create cost-effective retirement and health care benefits programs that help attract, retain and motivate a talented workforce. We strive to provide tailored benefits programs for our clients, and we base our recommendations on extensive research. Our Benefits Group, which consists of Retirement Consulting, Investment Consulting, and Group & Health Care Consulting, accounted for approximately 59% of our total segment revenues for the fiscal year ended June 30, 2002.

Retirement Consulting

We are one of the world's largest advisers on retirement plans, providing actuarial and consulting services for large defined benefit and defined contribution retirement plans. Our consultants work with clients to provide realistic assessments of the impact that the change in workforce demographics will have on their retirement plans, corporate cash flow requirements and retiree benefits adequacy and security.

In North America, and increasingly throughout much of the developed world, retirement security is provided through funded pension plans, most of which are either defined benefit or defined contribution plans. A typical defined benefit plan is characterized by employer contributions and a specified future benefit to the employee. These plans typically involve large asset pools, complex calculations to determine employer costs and funding requirements and sophisticated analysis to match liabilities and assets over long periods of time. These plans are commonly referred to as pension plans. A typical defined contribution retirement plan is characterized by employee contributions, possible employer matching contributions and an unspecified future benefit paid to the employee which will ultimately be based on investment returns. In the United States, the most common example of a defined contribution plan is a 401(k) plan.

Our target market for defined benefit plans consists of large plans such as the Fortune 1000, Pensions & Investments 1000, and other similarly sized plans and plan sponsors. The Watson Wyatt/Gabriel, Roeder, Smith & Company alliance is the market share leader in the combined Fortune and Pensions & Investments lists. Our consultants provide actuarial services and are the named actuaries to many of the world's largest retirement plans, including four of the five largest corporate-sponsored defined benefit plans in the United States. Our defined benefit services include:

• Strategic plan design
• Actuarial services
• Funding recommendations
• Multinational asset pooling consulting
• Financial reporting
• Valuation and diagnostic software and systems
• Assistance with changes relating to mergers, acquisitions and divestitures
• Compliance consulting
• Administrative services

We also help companies design and implement defined contribution plans, especially 401(k) plans in the United States.

In both the defined benefit and defined contribution areas, we emphasize research-based consulting to design retirement programs that align our clients' workforces with their business strategies. Examples of our products and services include:

• eHR/Benefits^TM - a customizable web portal to facilitate the administration and management of health and welfare benefits

• PreView^TM - a medical benefits cost modeling system which accurately and quickly models medical claims under alternative plan designs, covered populations and managed care delivery systems

• ConsumerHealthView - a cost modeling system to assess the short-term and long-term financial impact of consumer-driven health plans

• Health Plan Value Library^TM - a database of information on the cost, quality and accessibility of health plans that are used to screen and evaluate health plans

• Avoidable Claims Analysis - a data analysis system to identify opportunities for reduction of medical claims through health management programs

• Auto-RFP® - a powerful software application that organizes and eases the administrative process of gathering and evaluating the responses from healthcare vendors to requests for proposals

Through our registered investment advisor subsidiary, we offer investment consulting services that help private and public sector clients throughout the world maximize the return on their retirement plan assets, develop governance policies and strategies and design investment structures to successfully manage financial liabilities within the context of their overall business objectives. Our services include:

• Asset/liability modeling and asset allocation studies
• Governance and investment policy development
• Investment policy implementation
• Investment structure analysis
• Investment manager selection and evaluation
• Performance evaluation and monitoring

Our proprietary research shows that properly focused and executed eHR initiatives contribute significantly to shareholder value. As human resources programs become more complex and important for recruiting and retaining employees, organizations are seeking flexible, adaptable and cost-effective technology solutions. We are well-positioned to help clients address these challenges because of our eHR approach, which integrates organizational data, computer systems and workplace transactions in a single employee accessible network. We help organizations that have adopted internet applications for external business strategies to employ similar advanced technologies for internal applications used by employees, managers and human resources administrators.

We deliver state-of-the-art applications in health and welfare administration, benefits enrollment and pension administration. We also offer a diverse breadth of research-based strategic consulting, benchmarking and other technology services for compensation planning, service center design, recruiting and workforce management consulting, decision support systems and web-based benefit and compensation statements. Using our proprietary consulting methodology of ''Discover, Invent and Deliver,'' our consultants work with clients to evaluate existing human resources infrastructure and business strategy, identify the best sources of people, process and technology and design and implement tailored approaches. Our consulting work frequently involves the development of web-based employee self-service applications, the implementation of interactive call centers and the integration of existing legacy systems. We often host these web solutions for clients in our internal data centers.

Human Capital Group

Our Human Capital Group, which consists of approximately 230 associates, helps clients achieve competitive advantage by aligning their workforce with their business strategy. This includes helping clients develop and implement strategies for attracting, retaining and motivating their employees to maximize the return on their investment in human capital. Our Human Capital Group represented approximately 7% of our total segment revenues for the fiscal year ended June 30, 2002. Our Human Capital Group focuses in three principal areas:

Executive Compensation

We advise executives and boards of directors on executive pay programs, including cash compensation, stock options and stock purchase plans, and on ways to align pay-for-performance plans throughout the organization in order to increase shareholder value.

Strategic Rewards^®

We help align an organization's rewards - including compensation, stock programs, incentives, recognition programs and flexible work arrangements - with its business strategies, cultural values, work design and human resources strategy. We work together with our Benefits Group to develop optimal total compensation programs for our clients.

We help clients build high-performance organizations by working with them to clarify and implement business strategy, recognizing the impact of employee attitudes and commitment and effective team and leadership development on business success. We provide a wide array of services centered around organization assessment, including organization measurement and surveys. In the area of talent management, we provide tools and methodologies for talent selection and development, succession planning and performance management. We also provide consulting regarding the organization and development of the HR function, including shared services and organizational design.

We have created the Watson Wyatt Human Capital Indexâ , a proprietary tool for demonstrating the relationship between the effectiveness of an organization's human capital practices and the creation of superior shareholder returns. In support of our human capital consulting we also maintain databases of employee attitudes for client organization comparison.

International Operations

Our operations outside North America are managed and organized on a geographic basis. These operations include 24 offices in Asia-Pacific and Latin America, employing approximately 1,000 associates, which generally provide our full array of services. This segment represented approximately 10% of our total segment revenues for the fiscal year ended June 30, 2002.

We established our presence in Asia-Pacific in 1979 with offices in Hong Kong and Malaysia, and grew substantially throughout the 1980's and 1990's by establishing new offices and acquiring existing firms. We have been successful in growing high-end human capital consulting services, which has become increasingly important since the 1997/1998 economic crisis, helping our clients with the people and cultural issues that are necessary to grow their businesses. We are also widely recognized as the leader in providing compensation and benefits surveys in the region, with over 50 different survey products. Our retirement consulting services continue to grow in the region, and we provide investment consulting services to some of the largest pension plans in Japan and Hong Kong. We were named HR Consultancy of the Year in Hong Kong for 1998, 1999, 2000 and 2001 by China Staff magazine. In addition to our human capital and benefits consulting services, we also market eHR services to clients in the region.

Our presence in Latin America began in the early 1980's in Mexico and grew to include such major markets as Brazil in the 1990's. With deregulation, privatization and the influx of multinationals, we believe there are significant opportunities for growth in the region, both in the benefits area, where most of our services are concentrated currently, and in the human capital consulting area.

Other Services


Communication Consulting

Our communication consulting group has won numerous awards for innovative and effective communications. Our consultants combine strong creative skills with technical excellence on human resources issues and solid research on employee attitudes and communication effectiveness. We conduct communications audits, research, and focus groups, and provide communications planning and implementation. In addition, our consultants assist employers in complying with disclosure requirements.

Watson Wyatt Data Services

Watson Wyatt Data Services provides a comprehensive array of global compensation, benefits and employment practices information that is often studied and cited by many of our clients and competitors. In the United States, we publish and market an extensive library of reports on human resources issues, and more than 8,500 organizations participate in one or more of our annual surveys. Our databases contain compensation information for more than 5 million employees in virtually every industry sector and major metropolitan area. Outside of the United States, our worldwide alliance offers more than 70 remuneration, benefits and employment practice reference guides, covering more than 60 countries and 6 continents. In addition to our annual survey references, we also offer many reference works intended to assist practitioners in creating or maintaining programs in a variety of subject areas such as variable pay, performance management and personnel policies.

While we focus our consulting services in the principal areas described above, we draw upon consultants from our different practices to deliver integrated services to meet the needs of our clients. An example is in the area of Mergers and Acquisitions. Recognizing that many business combinations fail because of ''people problems,'' we help clients achieve better transactional success by assisting with faster integration, cost containment, increased customer focus and greater productivity. We assemble multi-disciplinary teams to provide key services that include due diligence of pension and benefits plans, company cultures and human resources strategies, integration of human resources processes and practices and enterprise-wide project management.

Another example is our Total Rewards approach which encompasses compensation, benefits, career growth and company culture. We help clients determine the correct mix of reward programs to attract and retain the right employees and to motivate them to produce desired results.

Sales and Marketing

We also pursue new clients using cross-disciplinary teams of consultants as well as dedicated business developers to initiate relationships with carefully selected companies. Our client expansion and new client acquisition efforts are supported by market research, comprehensive sales training programs, and extensive marketing databases. Our sales efforts are also supported by a full array of marketing programs designed to raise awareness of the Watson Wyatt Worldwide brand and our reputation within our target markets. These programs promote our thought leadership on key human resources issues and establish us as a preferred human capital consulting firm to many of the world's largest companies.

Clients

We work with major corporations, emerging growth companies, government agencies and not-for-profit institutions in North America, Latin America and Asia-Pacific across a wide variety of industries. Our client base is broad and geographically diverse. For the fiscal year ended June 30, 2002, our ten largest clients accounted for approximately 15% of our consolidated revenues and no individual client represented more than 4% of our consolidated revenues.

Competition

The human capital consulting business is highly competitive. We believe that there are several barriers to entry, such as the need to assemble specialized intellectual capital to provide expertise on a global scale, and that we have developed competitive advantages in providing human resources consulting services. However, we face intense competition from several different sources.

Our current and anticipated competitors include:

• Major human resources-focused consulting firms that compete in serving the large employer market worldwide, such as the Mercer Consulting Group, Towers Perrin and the administration/consulting firm Hewitt Associates;

• Smaller benefits and compensation consulting firms, such as The Segal Company and the Hay Group;

• The human resources consulting divisions of diversified professional service and insurance firms, such as PricewaterhouseCoopers, Deloitte & Touche, Booz, Allen & Hamilton, Mellon Financial Corporation and Aon;

• Information technology consulting firms, such as Accenture and KPMG Consulting, as well as internet/intranet development firms; and

• Boutique consulting firms comprised primarily of professionals formerly associated with the firms mentioned above.

The market for our services is subject to change as a result of increased regulatory, legislative, competitive and technological developments and competition from established and new competitors. We believe that the primary determinants of selecting a human resources consulting firm include reputation, ability to provide measurable increases to shareholder value, global scale, service quality and the ability to tailor services to a clients' unique needs. We believe we compete favorably with respect to these factors.

The Company employs approximately 4,250 associates as follows:

None of our associates are subject to collective bargaining agreements. We believe relations with associates are good.

In addition to the factors discussed elsewhere in this report, the following are some of the important factors that could cause our actual results to differ materially from those projected in any forward-looking statements:

• We must continue to recruit and retain qualified consultants; our failure to do so could adversely affect our ability to compete successfully.

• Changes in our compensation programs could impair our ability to retain consultants if our total compensation program is not perceived by our consultants to be competitive with those of other firms.

• We depend on our associates; the loss of key consultants and managers could damage or result in the loss of client relationships and adversely affect our business.

• Competition could result in loss of our market share that could reduce our profitability.

• Clients' criteria for selecting consultants may change. The ability to tailor services to clients' particular needs traditionally has been a key selection criterion among buyers of consulting services in our core businesses.  However, these buyers' selection criteria may change and price could become a more significant factor, thereby adversely affecting our operating results.

• Demand for our services may decrease for various reasons, including a general economic downturn, a decline in a client's or an industry's financial condition or changes in government regulation and taxation of employee benefit plans. A decrease in demand for our services could adversely affect our operating results.

• Our clients generally may terminate our services at any time, which could decrease associate utilization.

• Certain of our engagements are not based on written agreements, which could result in disputes with our clients.

• Our fixed-fee engagements could hurt our financial results if not properly managed.

• We are subject to malpractice claims arising from our work, which could adversely affect our reputation and business.

• Tightening insurance markets may reduce available coverage and result in increased premium costs.

• We depend on Watson Wyatt LLP for our brand in the European market and could lose our position in Europe if our alliance agreements were to terminate.

• Termination of our relationship with Watson Wyatt LLP could result in a name change.

• Our international operations present special risks, including foreign exchange risks, unexpected increases in taxes, new regulatory requirements, unusual and unexpected monetary exchange controls, economic downturns or civil disturbances, that could negatively affect our business.

• Operational readiness of our global administrative infrastructure might not be as complete as required to manage international operations effectively.

• Our business faces rapid technological change and our failure to respond to this change quickly could adversely affect our business.

• Our eHR Group has project-related risks that could adversely affect our financial results. In securing or carrying out these projects, we may encounter inadequate project scope definitions, unforeseen technological and systems integration problems, unanticipated costs, failures to meet contractual performance objectives and other business risks.

• Limited protection of our proprietary expertise, methodologies and software could harm our business.

• Changes in associate ownership could adversely affect our firm culture.

• Our certificate of incorporation and bylaws contain provisions that might discourage, delay or prevent a change in control that a shareholder might favor.

• Shares currently owned by our employees, which will become available for sale in October 2002 under our certificate of incorporation could adversely affect the price of our stock.

For more information on Risk Factors, see our prospectus dated June 21, 2001.

We operate in 61 offices in principal markets throughout the world. Operations are carried out in leased offices under operating leases that normally do not exceed 10 years in length. We do not anticipate difficulty in meeting our space needs at lease expiration.

We evaluate office capacity on an ongoing basis to meet changing needs in our markets while minimizing our occupancy expense. We currently have excess capacity in several markets and are actively marketing certain space for sublease. The recent economic downturn has negatively impacted the value of such space as current lease rates have generally dropped since the time such leases were signed.

The fixed assets owned by Watson Wyatt represented approximately 14% of total assets at June 30, 2002, and consisted primarily of computer equipment, office furniture and leasehold improvements.

Item 3.  Legal Proceedings.

From time to time, we are a party to various lawsuits, arbitrations or mediations that arise in the ordinary course of business. These disputes typically involve claims relating to the rendering of professional services or employment matters. The matters reported on below involve the most significant pending or potential claims against us, as well as the outcomes of claims previously reported. Management believes, based on currently available information, that the results of all such proceedings, in the aggregate, will not have a material adverse effect on our financial condition.

Pacific Group Medical Association (PGMA). In connection with the insolvency and liquidation of PGMA, a health insurance provider and former client, the Hawaii Insurance Commissioner, acting as liquidator of PGMA, brought claims in the Circuit Court of Hawaii against the former officers, directors, accountants, attorneys and other service providers of PGMA. The claim against Watson Wyatt was settled through mediation, and the settlement amount is being held in escrow pending resolution of the suit involving the non-settling parties.

Société Internationale de Télécommunications Aéronautique S.C. (SITA). In 1999, this Belgium cooperative based in France notified Watson Wyatt LLP, our European alliance partner, of a claim involving alleged errors in the design of a global employee stock plan which included work performed by a former subsidiary that is now owned by Watson Wyatt & Company Holdings (Europe) Limited. Suit was filed in November 2000 in England's High Court of Justice Chancery Division against Watson Wyatt LLP and The Wyatt Company (UK) Limited, one of our subsidiaries. The parties entered mediation in January 2002 and have settled this claim.

Toussaint, et al. v. James, et al. Union leaders, in their capacity as the trustees of a pension plan for the union leadership, brought suit in the U.S. District Court for the Southern District of New York against the former union leaders and Watson Wyatt alleging damages suffered in reliance on our actuarial work and breaches of fiduciary duties owed by the former union leaders. The claim against Watson Wyatt is allegedly in the $4 million range. The court has ordered mediation of the claim, which is scheduled for October 21, 2002.

New Jersey Coalition of Auto Retailers Insurance Group Trust (NJCAR). Watson Wyatt and other service providers of NJCAR, an insolvent group health insurance provider, are defending claims by NJCAR's receiver and its former trustees in the U.S. District Court for the District of New Jersey alleging that any losses resulting from the insolvency are attributable to its former service providers. Court mandated mediation before the U.S. Magistrate began on September 5, 2002 and is continuing. The amount of alleged damages against all the defendants is unclear, but appears to be in the $20 million range in the aggregate against all defendants.

The attorney for a retirement client in the U.S. advised us in November 2001 of a potential claim arising out of an estimate of the cost of a benefit enhancement. This claim has gone to mediation, and settlement discussions are under way.

In early 2002, the Company received correspondence from counsel to a municipal retirement fund to the effect that the fund has claims against us based on actuarial reports provided prior to 1994, which allegedly contained erroneous estimates of the fund's financial condition. The correspondence did not specify the nature of the alleged errors or any damages. We advised the client's attorney that we did not know of any basis for a claim, and we have heard nothing further regarding this matter.

We carry claims-made professional liability insurance with a self-insured retention of $1 million per occurrence, which provides coverage for professional liability claims including the cost of defending such claims. Our primary insurance coverage beyond this retention is written by an affiliated captive insurance company owned by three professional services firms. The first $5 million of coverage has a premium structure which provides for recovering approximately 75% of any loss up to $5 million through increased insurance premiums over the following five years. The Company has provided for the self-insured retention and for the prospective premium increases where specific estimated losses for known claims in excess of $1 million are considered estimable and probable. The Company has also used actuarial assumptions to estimate and record a liability for incurred but not reported professional liability claims. This liability was equal to $12.0 million as of June 30, 2002. We beli eve that we will be able to obtain insurance coverage in the future to cover such claims. In addition to professional liability insurance, we also carry employment practices liability insurance. In the current insurance market environment, we have experienced increases in premium cost and reductions in aggregate excess coverages, trends which are anticipated to continue.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

In October 2000, we completed an initial public offering ("IPO") of our class A common stock. In conjunction with that offering, we reorganized our corporate structure by merging Watson Wyatt & Company with a wholly-owned subsidiary of the Company. As a result, Watson Wyatt & Company became a wholly-owned subsidiary of the Company.

At the time of the reorganization, each share of Watson Wyatt & Company's redeemable common stock was converted into one share of class B-1 common stock and one share of class B-2 common stock of the Company. The class B common stock was divided into two classes to accommodate two different transfer restriction periods, which may be waived by the Board of Directors. The class B shares automatically convert into class A common stock following the expiration or waiver of the respective transfer restriction periods. The Company waived the transfer restriction on a total of 1,559,250 class B-1 and 1,559,250 class B-2 shares to allow for conversion into the class A shares for sale in the IPO.

In June 2001, we completed a secondary public offering of 2,950,000 shares of our class A common stock. In July 2001, our underwriters exercised their over-allotment option and purchased an additional 442,500 shares of class A common stock from selling stockholders. In conjunction with this offering, the Board of Directors waived the transfer restrictions on a total of 3,288,215 class B-1 shares to allow for conversion into the class A shares sold by selling stockholders.

A total of 9,956,140 class B-1 shares were automatically converted to class A shares upon the expiration of the twelve-month transfer restrictions on October 16, 2001. Transfer restrictions on 10,193,509 class B-2 shares will expire on October 16, 2002.

In December 2000, the Board authorized the conversion of not more than 40,000 of the Company's class B-2 shares held by Watson Wyatt LLP for distribution by Watson Wyatt LLP to certain retiring associates. In August 2001, the Board of Directors of the Company approved a proposal to amend the alliance agreement with Watson Wyatt LLP to reduce Watson Wyatt LLP's minimum required holdings of the Company's common stock to 100,000 shares. The Board authorized the conversion, on or after October 16, 2001, of up to 313,038 of the Company's class B-2 shares held by Watson Wyatt LLP for distribution by Watson Wyatt LLP to its partners, subject to the prior execution by each partner of a lock-up agreement imposing the same transfer restrictions on such class A shares as are applicable to the Company's class B-2 shares. In December 2001, the Board also authorized the conversion of 20,460 of the Company's class B-2 shares held by Watson Wyatt LLP for distribution by Watson Wyatt LLP to certain reti ring associates. Following the conversion of the class B-1 shares pursuant to the Company's Amended and Restated Certificate of Incorporation and the class B-2 shares pursuant to the Board's authorization, Watson Wyatt LLP distributed 626,000 shares to its individual partners, of which we received 62,600 representing our 10% ownership interest. We have accounted for these 62,600 shares as treasury stock. In May 2002, the Board authorized the conversion of an additional 42,827 class B-2 shares for distribution to the estate of a deceased associate. In August 2002, the Board authorized the conversion of 123,015 class B-2 shares for repurchase by the Company from shareholders in September 2002 at the then prevailing market price.

Watson Wyatt & Company Holdings class A common stock is currently traded on the New York Stock Exchange under the symbol WW. The following table sets forth the range of high and low closing share prices for each quarter of fiscal year 2002, determined by the daily closing stock prices.

As of August 31, 2002, there were approximately 650 shareholders of record of our class A common stock and approximately 1,500 shareholders of record of our class B common stock.

Under our credit facility (see Note 9 of Notes to the Consolidated Financial Statements, included in Item 15 of this report), we are required to observe certain covenants (including requirements as to minimum net worth) that affect the amounts available for the declaration or payment of dividends. Under the most restrictive of these covenants, approximately $31.0 million was available for the declaration or payment of dividends as of June 30, 2002. The declaration and payment of dividends by the Company is at the discretion of our Board of Directors and depends on numerous factors, including, without limitation, our net earnings, financial condition, availability of capital, debt covenant limitations and our other business needs, including those of our subsidiaries and affiliates. Historically, while our performance would have permitted the payment of dividends, we have chosen not to declare dividends every year since fiscal year 1991. We currently intend to retain our future earni ngs to finance the operation and expansion of our business and we do not anticipate paying cash dividends on our common stock in the foreseeable future.

Our equity compensation plans include the 2000 Long-Term Incentive Plan, which provides for the granting of nonqualified stock options and stock appreciation rights, the 2001 Employee Stock Purchase Plan, the 2001 Deferred Stock Unit Plan for Selected Employees and the Compensation Plan for Outside Directors. All of our equity compensation plans were approved by shareholders except for the Compensation Plan for Outside Directors. See Note 10 of the Notes to the Consolidated Financial Statements for the general terms of these plans.

The following chart gives aggregate information regarding grants under all of the Company's equity compensation plans through June 30, 2002:

Additional information required by this item will be included in a definitive proxy statement filed within 120 days after the end of the Registrant's fiscal year, which proxy statement is incorporated herein by this reference.

The table on the following page sets forth selected consolidated financial data of Watson Wyatt as of and for each of the years in the five year period ended June 30, 2002. The selected consolidated financial data as of June 30, 2002 and 2001 and for each of the three years in the period ended June 30, 2002 were derived from the audited consolidated financial statements of Watson Wyatt included in this Form 10-K. The selected consolidated financial data as of June 30, 2000, 1999, 1998, and for each of the years ended June 30, 1999 and 1998 were derived from audited consolidated financial statements of Watson Wyatt not included in this Form 10-K and were restated to reflect our discontinued operations. Earnings per share data for the periods ended June 30, 2000, 1999 and 1998 were also restated to reflect our corporate reorganization and two-for-one share conversion that occurred in October 2000 as if our corporate reorganization and two-for-one share conversion were effective at the beginning of each period. See Note 2 of the Consolidated Financial Statements for further information regarding the corporate reorganization and share conversion.

Our balance sheets as of June 30, 2001, 2000, 1999 and 1998 were restated to record an accrued liability for an actuarial estimate of our incurred but not reported professional liability claims. The restatement had no impact on earnings or cash flows for these periods. See Note 1 of the consolidated financial statements for further information regarding this restatement.

The consolidated financial data should be read in conjunction with our Consolidated Financial Statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Item 7 of this Form 10-K. Prior year data has been restated to be consistent with current classifications for comparative purposes. Amounts are in thousands of U.S. Dollars except per share data.

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Watson Wyatt is a global provider of human capital consulting services. We provide services in three principal practice areas: Benefits, eHR and Human Capital consulting. We operate from 61 offices in 18 countries throughout North America, Asia-Pacific and Latin America. We also operate through our affiliates in Europe. Our principal affiliates are Watson Wyatt LLP which conducts operations in the United Kingdom and Ireland, and in which we hold a 10% interest in a defined distribution pool, and are a member of their partnership board, and Watson Wyatt & Company Holdings (Europe) Limited, a holding company through which we conduct Continental European operations. We own 25% of Watson Wyatt & Company Holdings (Europe) Limited and Watson Wyatt LLP owns the remaining 75%.

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We operate globally as an alliance with our affiliates. However, the revenues and operating expenses in the Consolidated Statements of Operations reflect solely the results of operations of Watson Wyatt. Our share of the results of our affiliates, recorded using the equity method of accounting, is reflected in the ''Income from affiliates'' line.

In delivering consulting services, our principal direct expenses relate to compensation of personnel. Salaries and employee benefits are comprised of wages paid to associates, related taxes, benefit expenses such as pension, medical and insurance costs and fiscal year-end incentive bonuses. In addition, professional and subcontracted services include client reimbursed travel and other costs specifically billable to clients, as well as fees paid to external service providers for independent contractors, promotion expenses and other services. Approximately 50% of professional and subcontracted services are reimbursed by our clients and included in revenue.

Occupancy, communications and other expenses represent expenses for rent, utilities, supplies and telephone to operate office locations, as well as non-client-reimbursed travel by associates, publications and professional development. General and administrative expenses include the operational costs and professional fees paid by corporate management, general counsel, marketing, human resources, finance, research and technology support.

Historically, we have paid incentive bonuses to associates under a fiscal year-end bonus program. In fiscal years 1999 and 2000, in addition to annual fiscal year-end bonuses, we provided supplemental bonus compensation to our associate stockholders pursuant to our stock incentive bonus plan in an amount representing all income in excess of targeted performance. The supplemental bonus compensation pursuant to our stock incentive bonus plan accrued in fiscal year 1999 and fiscal year 2000 was paid in January 2000 and 2001, respectively. We terminated the stock incentive bonus plan in conjunction with our initial public offering in October 2000 and replaced it with equity-based incentives.

In conjunction with the Company's review of its overhead cost structure in the second quarter of fiscal year 2002, the Company examined the classification of its operating expenses. This review included the identification and evaluation of the costs that comprise General and administrative expenses. Prior to the second quarter of fiscal year 2002, expenses associated with and incurred by various associates from our practice groups (the "Practice Support Team"), for the centralized development of practice-specific tools and services, were included in General and administrative expenses. The costs associated with the Practice Support Team are mainly comprised of the salaries and employee benefits and professional services expenses incurred by the associates on this team.

As a result of our review, in the second quarter of fiscal year 2002, we reclassified the Practice Support Team's expenses from the beginning of fiscal year 1998 through the first quarter of fiscal year 2002 as components of Salaries and employee benefits, Professional and subcontracted services and Occupancy, communications and other expenses. These expenses were previously included as a component of General and administrative expenses and represent less than 2.5% of total operating expenses and revenue for each of the five years in the period ended June 30, 2002. Revenue, Income from operations, Income before income taxes and Net income were unaffected by this reclassification.

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For more information on the Company's reclassification of our Practice Support Team's expenses, refer to the Company's Form 8-K filed on January 24, 2002.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Our estimates, judgements and assumptions are continually evaluated based on available information and experience. Because of the use of estimates inherent in the financial reporting process, actual results could differ from those estimates. We have reviewed the accounting estimates recognized in our financial statements and have determined that the accounting for our pension plans utilizes assumptions that are highly uncertain and can have a material impact on the presentation of the Company's financial condition.

Pension Assumptions - We sponsor both qualified and non-qualified non-contributory defined benefit pension plans covering substantially all of our associates. Under our principal plans (U.S., Canada and Hong Kong), benefits are based on the number of years of service and the associate's compensation during the three highest paid consecutive years of service.

Determination of our obligations and annual expense under each of the plans is based on a number of assumptions that, given the longevity of the plans, are long-term in their focus. A change in one or a combination of these assumptions could have a material impact on our pension benefit obligation and related expense. For this reason, management employs a long-term view so that assumptions do not change frequently in response to volatility of the economy in the short-term. The Company recognizes that actual returns on investments in fiscal year 2002 are lower than our long-term expected rate of return. However, given our historical investment returns, which have approximated 14% over the past 20 years, and the long-term view of the plans, we anticipate the plans will realize the expected rate of return.

We consider several factors when determining the appropriate level of each assumption, including economic forecasts, historical trends, portfolio composition and peer comparisons. Assumptions used in the valuation for our U.S. plan, which comprises the majority of the principal defined benefit pension plans obligations and investments, included the following over the past three fiscal years:

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Revenue. Revenue from continuing operations was $710.5 million in fiscal year 2002, compared to $700.2 million in the prior year, an increase of $10.3 million, or 1.5%. After adjusting for the sale of our U.S. based public sector retirement business to Gabriel, Roeder, Smith & Company ("GRS"), revenue growth was $15.3 million or 2.2%. The unadjusted revenue growth was comprised of a $21.0 million, or 6% increase in our Benefits Group and an $8.8 million, or 9% increase in our eHR Group, partially offset by a $7.0 million, or 13% decrease in our Human Capital Group, a $5.1 million, or 7% decrease in International and a $7.5 million, or 12% decrease in Other practice areas in North America.

Salaries and Employee Benefits. Salaries and employee benefit expenses for fiscal year 2002 were $404.8 million, compared to $379.6 million for the previous fiscal year, an increase of $25.2 million, or 7%. Salaries and employee benefit expenses for fiscal year 2001 includes the $3.5 million compensation charge that the Company incurred resulting from agreements with our employee stockholders related to our initial public offering in the second quarter of fiscal year 2001. The increase, inclusive of this charge, was principally due to a $15.9 million increase in salaries, a $14.9 million increase in pension expenses and a $5.4 million increase in benefits and wage taxes, partially offset by a $12.2 million decrease in the accrual for discretionary compensation. As a percentage of revenue, salaries and employee benefit expenses increased to 56.9% from 54.3%.

Professional and Subcontracted Services. Professional and subcontracted services used in consulting operations for fiscal year 2002 were $48.7 million, compared to $54.1 million for fiscal year 2001, a decrease of $5.4 million, or 10%. The decrease was mainly due to lower reimbursable services incurred on behalf of clients of $3.1 million and lower recruiting fees of $1.7 million. As a percentage of revenue, professional and subcontracted services decreased to 6.9% from 7.7%.

Occupancy, Communications and Other. Occupancy, communications and other expenses for fiscal year 2002 were $109.2 million, compared to $114.4 million for fiscal year 2001, a decrease of $5.2 million, or 5%. The decrease was mainly due to lower travel costs of $6.8 million, lower general office expenses of $2.9 million, lower dues and entertainment expense of $0.9 million and decreased publication expenses of $0.6 million, partially offset by higher rent expense of $3.6 million, which is attributable to an increase in leased space required to support our operations and higher real estate and operating expenses and higher telephone expenses of $2.3 million. As a percentage of revenue, occupancy, communications and other decreased to 15.4% from 16.3%.

General and Administrative Expenses. General and administrative expenses for fiscal year 2002 were $55.5 million, compared to $57.5 million for fiscal year 2001, a decrease of $2.0 million, or 3%. The decrease was mainly attributable to lower travel costs of $2.3 million, lower professional services of $2.0 million and a lower accrual for discretionary compensation of $1.4 million, partially offset by a $2.6 million increase in pension and insurance expenses, a $0.8 million increase in promotional expenses and a $0.4 million increase in base salaries. As a percentage of revenue, general and administrative expenses decreased to 7.8% from 8.2%.

Depreciation and Amortization. Depreciation and amortization expenses for fiscal year 2002 were $20.0 million, compared to $22.0 million for fiscal year 2001, a decrease of $2.0 million, or 9%. The decrease is primarily attributable to the Company no longer amortizing goodwill, pursuant to FAS 142. As a percentage of revenue, depreciation and amortization expenses decreased to 2.8% from 3.1%.

Interest Income (Expense), net. Interest income (expense), net for fiscal year 2002 was $1.2 million, compared to $1.7 million for fiscal year 2001, a decrease of $0.5 million, or 29%. The decrease reflects lower interest rates earned on our cash and cash equivalents.

Other Non-Operating Income. Other non-operating income for fiscal year 2002 was $2.2 million, which is due to the gain on the sale of our U.S. based public sector retirement business of $1.0 million and a $1.2 million gain on the sale of common stock that the Company received as a result of the demutualization of a health and general insurance provider.

Income from Affiliates. Income from affiliates for fiscal year 2002 was $2.9 million, compared to $3.8 million for fiscal year 2001, a decrease of $0.9 million, or 24%. The decrease is attributable to reduced operating income of our Continental European affiliate, Watson Wyatt Holdings (Europe) Limited.

Provision for Income Taxes. Income taxes for fiscal year 2002 were $31.4 million, compared to $33.6 million for fiscal year 2001. Our effective tax rate was 40.0% for fiscal year 2002, compared to 42.9% for fiscal year 2001. The change in the effective rate was due to a decrease in state taxes and a decrease in non-deductible expenses. Our effective tax rate was also affected by differing foreign tax rates in various jurisdictions. We record a tax benefit on foreign net operating loss carryovers and foreign deferred expenses only if it is more likely than not that a benefit will be realized.

Net Income. Net income for fiscal year 2002 was $47.1 million, compared to $44.4 million in fiscal year 2001, an increase of $2.7 million, or 6%. As a percentage of revenue, net income increased to 6.6% from 6.3%.

Earnings Per Share. Diluted earnings per share for fiscal year 2002 was $1.41, compared to $1.37 for fiscal year 2001. Results for fiscal year 2002 include the effect of the other non-operating income discussed above equaling $0.04 per diluted share. Fiscal year 2001 results include the $2.3 million after tax or $0.07 per diluted share, compensation charge that the Company incurred related to our initial public offering and the effect of amortization of goodwill equal to $0.05 per diluted share. Exclusive of these items, diluted earnings per share would have been $1.37 in fiscal year 2002 compared to $1.49 in fiscal year 2001.

Revenue. Revenue from continuing operations was $700.2 million in fiscal year 2001, compared to $624.6 million in the prior year, an increase of $75.6 million, or 12%. This revenue growth was comprised of a $45.0 million, or 13% increase in our Benefits Group, a $16.2 million, or 20% increase in our eHR Group, a $4.5 million, or 9% increase in our Human Capital Group, a $6.4 million, or 9% increase in International and a $1.7 million, or 3% increase in Other practice areas in North America. The revenue increase for the North American practices was mainly due to the realization of net rate increases, reflecting our continued focus on large value-added projects, to increased chargeable hours and to improved management of the scope of projects.

Salaries and Employee Benefits. Salaries and employee benefit expenses for fiscal year 2001 were $379.6 million, compared to $339.9 million for the previous fiscal year, an increase of $39.7 million, or 12%. Salaries and employee benefit expenses for the year ended June 30, 2001 include a $3.5 million compensation charge the Company incurred resulting from agreements with our employee stockholders related to our initial public offering. The remaining increase was mainly due to an increase in compensation, which is partly the result of annual salary increases averaging 8%, coupled with an 11% increase in headcount. As a percentage of revenue, salaries and employee benefits decreased to 54.3% from 54.4%.

Stock Incentive Bonus Plan. The stock incentive bonus plan was discontinued in conjunction with our initial public offering. Accordingly, there was no accrued bonus under this plan for the year ended June 30, 2001.

Professional and Subcontracted Services. Professional and subcontracted services used in consulting operations were $54.1 million for fiscal year 2001, compared to $49.9 million for fiscal year 2000, an increase of $4.2 million, or 8%. The increase was mainly due to higher reimbursable services generated on behalf of clients. As a percentage of revenue, professional and subcontracted services decreased to 7.7% from 8.0%.

Occupancy, Communications and Other. Occupancy, communications and other expenses were $114.4 million for fiscal year 2001, compared to $101.7 million for fiscal year 2000, an increase of $12.7 million, or 12%. The increase was mainly due to a $3.9 million increase in rent expense, attributable to an increase in the amount of space required to support our expanding operations and higher real estate taxes and operating expenses, a $2.6 million increase in travel expenses which is mainly due to expenses incurred in the first quarter of fiscal year 2001 relative to our annual leadership conference held in Europe this fiscal year, a $1.0 million investment in a strategic relationship, a $0.8 million increase in equipment rental expenses, and a $3.5 million increase in general office expenses including insurance, business taxes, telephone, office supplies and professional development. As a percentage of revenue, occupancy, communications and other expenses remained at 16.3%.

General and Administrative Expenses. General and administrative expenses for fiscal year 2001 were $57.5 million, compared to $54.1 million for fiscal year 2000, an increase of $3.4 million, or 6%. The increase was mainly due to an increase in compensation, which is due to the planning and implementation of corporate initiatives involving knowledge management, systems infrastructure and human resources. As a percentage of revenue, general and administrative expenses decreased to 8.2% from 8.7%.

Depreciation and Amortization. Depreciation and amortization expenses for fiscal year 2001 were $22.0 million, compared to $17.9 million for fiscal year 2000, an increase of $4.1 million, or 23%. The increase was mainly due to a $3.4 million increase in the depreciation of computer hardware and leasehold improvements, resulting from higher purchases to support our expanding operations. The remaining $0.7 million is mainly due to an increase in amortization of intangibles, which is mainly due to recent acquisitions. As a percentage of revenue, depreciation and amortization expenses increased to 3.1% from 2.9%.

Interest Income (Expense), net. Net interest income for fiscal year 2001 was $1.7 million, compared to net interest expense of $0.1 million for fiscal year 2000, an increase of $1.8 million. The increase was due to interest earned on a higher average investment balance during fiscal year 2001 as a result of our initial public offering, and reduced borrowings against our revolving credit line in fiscal year 2001.

Income from Affiliates. Income from affiliates for fiscal year 2001 was $3.8 million, compared to $3.0 million for fiscal year 2000, an increase of $0.8 million, or 27%. The increase reflected improvement in business operations by our affiliates in Continental Europe and strong business performance by our United Kingdom affiliate.

Provision for Income Taxes. Income taxes for fiscal year 2001 were $33.6 million, compared to $15.2 million for fiscal year 2000. Our effective tax rate was 42.9% for fiscal year 2001, compared to 44.9% for fiscal year 2000. The change was due to the increase in foreign source income taxed at lower foreign tax rates, a decrease in the effective state tax rate due to state tax credits and incentives and a decrease in the tax effect of non-deductible expenses as a result of higher pre-tax earnings. Our effective tax rate was affected by differing foreign tax rates in various jurisdictions. We record a tax benefit on foreign net operating loss carryovers and foreign deferred expenses only if it is more likely than not that a benefit will be realized.

Net Income. Net income for fiscal year 2001 was $44.4 million, compared to $18.5 million in fiscal year 2000, an increase of $25.9 million, or 140%. The increase is due to our revenue growth and the absence of the stock incentive bonus plan accrual in fiscal year 2001. As a percentage of revenue, net income increased to 6.3% from 3.0%.

Our cash and cash equivalents at June 30, 2002 totaled $96.0 million, compared to $81.7 million at June 30, 2001. During fiscal year 2002, the Company paid fiscal year 2001 cash bonuses of $58.0 million, purchased fixed assets for $31.6 million and paid $36.6 million in corporate taxes. These expenditures were principally funded by cash generated from operating activities.

Cash From Operating Activities. Cash from operating activities for fiscal year 2002 was $51.6 million, compared to cash from operating activities of $43.2 million for fiscal year 2001. The variance is mainly due to the payment under the Stock Incentive Bonus Plan of $30.3 million in the third quarter of fiscal year 2001, compared to no payment in fiscal year 2002 and the $14.3 million lower accrual for discretionary compensation in fiscal year 2002, compared to fiscal year 2001. The allowance for doubtful accounts decreased $1.3 million and the allowance for work in process decreased $0.7 million from June 30, 2001 to June 30, 2002. The number of days of accounts receivable and work in process outstanding was 79 at June 30, 2002, down from 81 at June 30, 2001.

Cash from operating activities for fiscal year 2001 was $43.2 million, compared to cash from operating activities of $38.1 million for fiscal year 2000. The variance is primarily due to a net increase of cash received from the Company's consulting operations of $21.1 million and lower net payments to retirees of $7.7 million, partially offset by $7.7 million in higher net supplemental bonus compensation to our employee stockholders pursuant to our stock incentive bonus plan, $6.7 million in higher net fiscal year-end bonuses, higher net corporate taxes of $9.0 million and the $2.7 million that we paid to selling stockholders as reimbursement for commission payments resulting from the sale of their shares in our initial public offering.

Cash Used in Investing Activities. Cash used in investing activities for fiscal year 2002 was $36.6 million, compared to $36.4 million for fiscal year 2001.

Cash used in investing activities for fiscal year 2001 was $36.4 million, compared to $22.8 million for fiscal year 2000. The increase in cash usage was due to $9.3 million in higher current year fixed asset purchases, principally related to system upgrades and leasehold improvements, and $4.9 million in higher contingent consideration payments associated with acquisitions.

Cash From/Used for Financing Activities. Cash used for financing activities was $2.6 million for fiscal year 2002, compared to $36.8 million from financing activities for fiscal year 2001. Cash flows from financing activities for fiscal year 2001 were mainly due to proceeds from the Company's initial public offering in October 2000. Pursuant to a November 2001 Board authorization to repurchase shares, the Company repurchased 190,425 shares of common stock on the open market during the third and fourth quarters of fiscal year 2002 and re-issued 69,691 of these shares under the Employee Stock Purchase Plan for a net cash outflow of $3.1 million, in connection with the Company's employee benefit plans.

Cash from financing activities was $36.8 million for fiscal year 2001, compared to $9.2 million used for financing activities for fiscal year 2000. This change reflected the proceeds received from the sale of stock in our initial public offering and secondary offering of $36.9 million and a $9.1 million decrease in repurchases of redeemable common stock.

We lease office space, furniture and selected computer equipment under operating lease agreements with terms ranging from one to ten years. Future expected payments are as follows:

Management has determined that there is not a large concentration of leases that will expire in any one fiscal year. Consequently, management anticipates that any increase in future expenses will be mainly market driven. The Company currently has excess capacity in several markets and is actively marketing certain space for sublease. The recent economic downturn has generally caused current lease rates to decline since the time such leases were signed, which may cause the Company to recognize losses to the extent that the Company enters into sublease agreements and future minimum lease payments exceed future sublease income.

The Company continues to guarantee certain leases for office premises and equipment for Wellspring. At June 30, 2002, minimum remaining payments guaranteed under these leases, which expire at various dates through 2007, total $30.8 million, excluding sublease income. These leases are also jointly and severally guaranteed by the Company's former partner in Wellspring, State Street Bank and Trust Company. The estimated loss from the potential exercise of these guarantees was included in the fiscal year 1998 loss on disposal of the benefits administration outsourcing business. The Company has been making cash payments of $0.3 to $1.0 million per year related to Wellspring.

In connection with the establishment of our alliance with Watson Wyatt LLP in 1995, the Company agreed to guarantee Watson Wyatt LLP's performance under a lease for office space in London that expires in 2015. Payments by Watson Wyatt LLP under the lease total approximately $2.1 million per year. We also granted Watson Wyatt LLP an option to return the leased space to our UK subsidiary in 2009. If Watson Wyatt LLP exercises this option, the Company would attempt to sublease the space at the then-current market rates.

The Company entered into a new credit agreement with a syndicate of banks effective June 25, 2002. As a result of this agreement, we have a $100.0 million revolving credit facility at an interest rate that varies with LIBOR and/or the Prime Rate, and is based on our leverage ratio, as defined by the agreement. We are charged a quarterly commitment fee, currently 0.25% of the facility that varies with our financial leverage and is paid on the unused portion of the credit facility. No amounts were outstanding under the Company's revolving credit facility as of June 30, 2002, nor under its predecessor facility at June 30, 2001. Credit under the facility is available upon demand, although the credit facility requires us to observe certain covenants (requirements for minimum net worth, which acts to restrict dividends, and other financial and restrictive covenants) and is collateralized with a pledge of stock of material subsidiaries. At June 30, 2002 and at each quarter end during the fis cal year, we were in compliance with all covenants under the credit facility. A portion of the revolving facility is used to support required letters of credit issued under the credit line. As a result, $5.8 million of the facility is currently unavailable for operating needs. We are also charged a fee for outstanding letters of credit that also fluctuates based on our leverage ratio. The credit facility is scheduled to mature on June 25, 2005.

Additionally, the Company guarantees a credit facility which provides loans to associates for stock purchased under our former Stock Purchase Program. This program was discontinued in conjunction with our initial public offering in October 2000. As a result, the facility permanently decreases as the loans are repaid. The maximum available borrowings and aggregate outstanding balances under this facility were $2.9 million and $8.5 million at June 30, 2002, and June 30, 2001, respectively. A total of 2,731,000 and 4,598,000 Watson Wyatt & Company Holdings shares were pledged by stockholders to collateralize these loans at June 30, 2002, and June 30, 2001, respectively.

Anticipated commitments of funds for capital expenditures are estimated at $32.0 million for fiscal year 2003, mainly for computer hardware purchases, office relocations and renovations, development and upgrade of financial and knowledge management systems, and acquisition-related payments. Capital expenditures will be required in conjunction with office lease renewals and relocations required to support our growth strategy. Additionally, our consultants require access to hardware and software that will support servicing our clients. In a rapidly changing technological environment, management anticipates we will need to make continued investments in our knowledge sharing and financial systems infrastructure. We expect cash from operations to adequately provide for these cash needs.

Our foreign operations do not materially impact liquidity or capital resources. At June 30, 2002, a total of $21.5 million of the total cash balance of $96.0 million was held outside of North America, which we have the ability to readily utilize, if necessary. There are no significant repatriation restrictions other than local or U.S. taxes associated with repatriation. Our foreign operations in total are substantially self-sufficient for their working capital needs.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to market risks in the ordinary course of business. These risks include interest rate risk and foreign currency exchange risk. We have examined our exposure to these risks and concluded that none of our exposures in these areas are material to fair values, cash flows or earnings. We do not engage in any hedging of market risks with derivative instruments.

The financial statements and supplementary data are included as Item 15 of this report.

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

There are no changes in accountants or disagreements with accountants on accounting principles and financial disclosures required to be disclosed in this Item 9.

The response to this item will be included in a definitive proxy statement filed within 120 days after the end of the Registrant's fiscal year, which proxy statement is incorporated herein by this reference.

The response to this item will be included in a definitive proxy statement filed within 120 days after the end of the Registrant's fiscal year, which proxy statement is incorporated herein by this reference.

The response to this item will be included in a definitive proxy statement filed within 120 days after the end of the Registrant's fiscal year, which proxy statement is incorporated herein by this reference.

Item 13. Certain Relationships and Related Transactions.

The response to this item will be included in a definitive proxy statement filed within 120 days after the end of the Registrant's fiscal year, which proxy statement is incorporated herein by this reference.

Item 14. Controls and Procedures.

In implementing Section 302 of the Sarbanes-Oxley Act, the SEC has promulgated final rules relating to the need for Companies to establish disclosure controls and procedures. In response, the Company is establishing a disclosure

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committee comprised of the U.S. Central Division Manager, General Counsel, Chief Financial Officer, Controller, and Director of Investor Relations to review important disclosure issues as well as to create and test controls to ensure that all material information is properly collected and disclosed by the Company.

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Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

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1. I have reviewed this annual report on Form 10-K of Watson Wyatt & Company Holdings;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report.

Date: September 25, 2002

I, Carl D. Mautz, certify that:

1. I have reviewed this annual report on Form 10-K of Watson Wyatt & Company Holdings;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report.

Date: September 25, 2002

To the Board of Directors and

Shareholders of Watson Wyatt & Company Holdings

In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) on page 29 of this Form 10-K, after the restatement described in Note 1, present fairly, in all material respects, the financial position of Watson Wyatt & Company Holdings and its subsidiaries at June 30, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2002, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) on page 29 of this Form 10-K presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and the financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on t hese financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

Washington, D.C.

August 19, 2002, except for
Note 10, as to which the date
is September 12, 2002
 

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